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The “Absolute Priority Rule” and Other “Rules” of “Priority” in Bankruptcy

Phil Anker, in this article published by DailyDAC's Commercial Bankruptcy Alternatives, explores the “Absolute Priority Rule” and other “Rules” of “Priority” in bankruptcy, and if they really are “absolute,” if they really are “rules,” and if they always provide “priority” to some claimants over others.

Excerpt: At its core, corporate bankruptcy addresses the problem of the “inadequate pie.” While occasionally the debtor will be solvent, in most cases, the debtor will, for lack of a better term, be “bankrupt”—that is, it won't have enough money or other assets to pay its creditors all they are owed. The Bankruptcy Code includes a number of provisions designed to help the bankruptcy estate maximize its value so that the creditor body can recover as much as possible. For example, it allows the debtor to be reorganized in Chapter 11, rather than liquidated in Chapter 7, where the debtor is worth more reorganized than liquidated; provides an “automatic stay” against creditor collection efforts, so as to give the trustee or debtor-in-possession a breathing spell to marshal the debtor's assets and organize the debtor's affairs; and it permits the trustee or debtor-in-possession to “reject” most burdensome executory contracts and unexpired leases. But, even after the exercise of all these powers, most debtors remain insolvent. The Bankruptcy Code therefore also needs to establish rules for the distribution of the inadequate pie—how big a slice does each claimant receive, and in what order of priority does it receive that slice, before the pie disappears? Read the article.

On behalf of client and artist Matt Furie, the creator of Pepe the Frog, WilmerHale has enforced Furie's intellectual property rights to shut down distribution of Eric Hauser's controversial children's book The Adventures of Pepe and Pede. Hauser's book, which featured a character named Pepe the Frog, espoused racist, Islamophobic and hate-filled themes, included allusions to the alt-right movement and was deliberately targeted at children. Under threat of litigation, Hauser admitted infringement. He agreed today to stop distribution of his book in all forms.

Under US copyright law, Furie is entitled to all of the profits that Hauser made by selling his infringing book. Instead, per the agreement—and at Furie's insistence—Hauser will be required to give all of his profits to the Council on American-Islamic Relations (CAIR), the nation's largest Muslim civil rights and advocacy organization.

Furie created the Pepe the Frog character in the early 2000s, and Pepe appeared in Furie's comic Boy's Club from 2005 through 2012. Pepe is a “peaceful frog-dude”—a kind and blissful cartoon character—who appeared alongside three animal roommates, and became famous in part because of his catchphrase, “feels good man.” By 2014, Pepe featured prominently in various internet memes. Beginning in late 2015, Pepe's image started appearing in hateful depictions associated with the alt-right, including alongside white supremacist language and symbols and other offensive imagery. Since then, Furie has made attempts short of legal action to counteract the spread of Pepe the Frog's association with the alt-right, including initiating the #SavePepe campaign to restore Pepe as a character representing peace, togetherness and fun. Hauser's book is the first instance in which Furie has threatened litigation to enforce his intellectual property rights.

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